Interbank Transfers Research Articles

Cashless in Indonesia: Gelling Mobile E-frictions?

Indonesia has a large and diverse population, with highly uneven levels of development and a complex decentralized structure. This makes creating a long-term institutional framework and building connectivity infrastructure extremely challenging. The majority of the population is unbanked, and lacks access to fixed telephone lines or the country’s limited banking services. Cashless payment systems such as credit cards are used by less than 10 per cent of the population. The use of ATM and debit cards is still limited, although inter-bank transfers have increased after the introduction of a recent mechanism allowing inter-operability between different banks and mobile network operators. With the rapid growth of mobile uptake, mobile money has the potential to grow but comes with various constraints. This research note argues that in this highly dynamic and fragmented market, analysis and development of cashless payment needs to look beyond masterplan reports, to investigate the more informal, decentralized, mobile-led development and frictions in non-cash payments.

Liquidity Risk, Bank Networks, and the Value of Joining the Federal Reserve System

Reducing systemic liquidity risk related to seasonal swings in loan demand was one reason for the founding of the Federal Reserve System. Existing evidence on the post-Federal Reserve increase in the seasonal volatility of aggregate lending and the decrease in seasonal interest rate swings suggests that it succeeded in that mission. Nevertheless, less than 8 percent of state-chartered banks joined the Federal Reserve in its first decade. Some have speculated that nonmembers could avoid higher costs of the Federal Reserve’s reserve requirements while still obtaining access indirectly to the Federal Reserve discount window through contacts with Federal Reserve members. We find that individual bank attributes related to the extent of banks’ ability to mitigate seasonal loan demand variation predict banks’ decisions to join the Federal Reserve. Consistent with the notion that banks could obtain indirect access to the discount window through interbank transfers, we find that a bank’s position within the interbank network (as a user or provider of liquidity) predicts the timing of its entry into the Federal Reserve System and the effect of Federal Reserve membership on its lending behavior. We also find that indirect access to the Federal Reserve was not as good as direct access. Federal Reserve member banks saw a greater increase in lending than nonmember banks.

MCB: Implementation of the Symbols Project

This is a case that facilitates learning about IT-enabled change management. It tracks both the decision to convert to a $1.7 million banking enterprise system and its roll-out between 2002 and 2008. The project was met with resistance by the branches of this major nationwide bank to the point that in 2005 the project team was completely reorganized and a new Senior Vice President (SVP) position was created specifically for the project. The new system would lead to more centralization and integration with faster inter-branch processing as compared to the previous system which granted branches more autonomy in inter-bank transfers and employees only interacted with the system through data operators. Recognizing customers at the bank level and not just at branch level was an important objective. The complete project reorganization allows readers to understand the need to appreciate certain factors that may be deemed as trivial, especially where top-down IT enabled change is being implemented. At the end of the case, the project is still in progress with 818 branches (76 per cent) converted to the new system.

Interchange fees and incentives to invest in payment card systems

Interchange fees are interbank transfers that are used by payment platforms to allocate the total cost of a payment card transaction between the cardholder's bank (the Issuer) and the merchant's bank (the Acquirer). Each time a consumer pays by card, the Issuer of the card pays an interchange fee to the Acquirer of the transaction. In this paper, I study how banks' investments in payment card systems impact the privately and the socially optimal interchange fees. I show that if the Acquirer's contribution to investments is high, and if the consumers benefit more than the merchants from investments, the payment platform may decide to lower the interchange fee so as to encourage banks' investments in quality.

JACKSONIAN MONETARY POLICY, SPECIE FLOWS, AND THE PANIC OF 1837

The Panic of 1837 stands among the most severe banking crises in U.S. history. It is thus not surprising that a number of hypotheses have over time emerged to disentangle its “true” causes from a host of domestic and international factors that came into play as the crisis approached. In this paper, I analyze unexplored information from the U.S. government documents and contemporary newspapers to take a fresh look at the role of domestic factors. These sources point to an explanation that places neither the official distribution of the federal surplus to the states in the Spring of 1837 nor an international shock at the center. Rather, a series of underappreciated interbank transfers of government balances ordered in the year leading up to the crisis combined with a policy-induced increase in the demand for coin in the Western states to drain the largest New York City banks of their specie reserves and render the panic inevitable.

Analysis of systemic risk in multilateral net settlement systems

Abstract Systemic risk in multilateral net settlement systems is investigated using a four-period model. The model focuses on the tradeoff between systemic risk and the cost of interbank transfers. Banks optimize their reserve holdings at the central bank, the settlement medium, based on a future random liquidity shock and payment system parameters such as total asset and collateral requirements, and net debit caps. The model’s results are as follows. The model determines the maximum number of bank defaults that can be sustained without a stoppage in the clearance and settlement process. An interbank funds market increases the efficiency of the payment system. The payment system operator can reduce systemic risk by imposing asset and collateral requirements, and debit caps. The central bank can provide sufficient liquidity to prevent a systemic collapse but may face high costs.

Sur les transferts interbancaires par télétransmission aux États Unis. Pour une réglementation des nouveaux moyens de paiement par télétransmission

Although it constitutes one of the most important means of interbank transfers in the United States, payment orders by wire tranfers have not been the subject of legislation or regulatory promulgations in said country. Infact, the three large private Systems which handle most of wire transfers have done no more than to promulgate rules which limit their own liability. Within a short time, however, it became clear that such rules, even when supplemented by contractual provisions, could notmake upfor the absence of a legal context which specifies the rights and obligations of the parties to such operations. A Commission, composed of representatives of banks, attorneys and law professors, has undertaken the task of filling this legal void by preparing a draft « Uniform Code of New Means of Payment ». In this article, the author, the reporter of the aforementioned Commission, analyses the principal points of the draft which will certainly hâve an impact on tranfers made by, between or through French financial establishment.